Pound to Indian Rupee Exchange Rate Struggles to Recover from Thursday Plummet
Despite the Indian Rupee’s (INR) broad weakness in recent months, the Pound Sterling to Indian Rupee (GBP/INR) exchange rate has slumped on Brexit fears, UK political woes, and rising demand for risky emerging market currencies.
Emerging market demand kept pressure on GBP/INR after the pair opened this week at the level of 94.25.
On Thursday, the latest UK economic developments caused the Pound (GBP) to plummet and GBP/INR shed around two Rupees, briefly touching a 2-month-low of 91.55.
At the time of writing on Friday, GBP/INR had only rebounded slightly as markets cooled due to a lack of fresh concerns.
Amid fears that UK Prime Minister Theresa May could see a leadership challenge in the coming sessions and that this may undermine the Brexit process or lead to a ‘no-deal Brexit’, the Pound has been sold.
The Indian Rupee, on the other hand, has benefitted from risk-sentiment and lower prices of major commodities like oil.
Pound (GBP) Exchange Rate Recovery Limited by Broad Political Uncertainties
The Pound rebounded slightly from its worst levels on Friday morning as investors bought the highly volatile currency from its cheapest levels.
Sterling’s slight rebound was supported by confident statements from UK Prime Minister Theresa May, and news that UK Environment Secretary Michael Gove refused to resign despite his disagreement with the UK-EU Brexit bill.
However, broad uncertainties remained about the potential likelihood of Prime Minister May facing a leadership challenge soon, which could undermine the Brexit process.
According to Ulrich Leuchtmann, FX Strategist at Commerzbank:
‘As long as ‘no deal’ remains as likely as it is, there is a risk of a Sterling depreciation spiral that is self-intensifying,
Sterling volatility has woken up from its 100-year slumber and is likely to remain reactive,’
With the formal Brexit date now just five months away, anxiety that a deal could fail and lead to a worst-case scenario ‘no-deal Brexit’ could mean this market panic and uncertainty over Britain’s outlook is unlikely to fade without significant clarification.
Indian Rupee (INR) Exchange Rates Cool Following Week’s Rebounds
Investors have been buying risky emerging market currencies like the Indian Rupee for most of the week, as many global factors have left investors more willing to take risks and buy emerging market assets.
Amid signs that the US and China are looking for further negotiations on trade, markets became more hopeful that the nations could de-escalate trade tensions.
This dampened market demand for safe haven currencies like the US Dollar (USD), leaving emerging market currencies more appealing.
On top of this, the Indian Rupee was supported by slumping oil prices.
Amid rising oil stocks and concerns of an incoming supply glut that OPEC may not agree to tackle, prices of the commodity fell. As an emerging market, India typically benefits from lower oil prices.
Demand for the Indian Rupee was a little softer on Friday, but its gains versus the weak Pound were ultimately bolstered by emerging market demand.
Pound to Indian Rupee (GBP/INR) Exchange Rate Outlook Depends on UK Politics and Brexit
Despite the recovery in emerging market currencies like the Indian Rupee being fairly influential, the Pound’s movement was by far the most influential throughout the last week amid the shocking UK political developments.
The Pound to Indian Rupee (GBP/INR) exchange rate’s outlook is likely to remain filled with uncertainties until there is some solid clarity on the future of the UK government and the Brexit process.
If UK Prime Minister Theresa May spends next week faced with a leadership challenge, fears may rise that this could delay or undermine the recently reached UK-EU Brexit deal.
The emergency UK-EU summit, at which the Brexit deal is set to be finalised, is due to take place on the 25th of November. If this is delayed then ‘no-deal Brexit’ fears could deepen and the Pound will slump.
Essentially, if UK political jitters and ‘no-deal Brexit’ fears worsen then there may be further losses ahead for the Pound.
The Indian Rupee outlook, on the other hand, will be influenced by shifts in market risk-sentiment driven by factors including US-China trade tensions.
News related to politics and risk-sentiment is more likely to influence the Pound to Indian Rupee (GBP/INR) exchange rate than upcoming UK factor data from CBI, or India’s upcoming deposit growth and bank loan groan figures.